How to Set Realistic Financial Goals

TED BECK: Nearly seven in 10 (68%) of Americans say they are determined to improve their financial well-being in the New Year. It’s not without good reason. A survey conducted just last month by the National Endowment for Financial Education finds one in three U.S. adults say the current quality of their financial life is worse than they expect it to be.

So how about setting realistic resolutions for a change?

A great place to start is to better understand who you are financially and learn your money personality. The noncommercial LifeValues Quiz will help you identify what drives your financial behaviors and decision making. Have you ever wondered why you make certain spending choices or why your needs versus wants seem to be so much in conflict? Do you feel at times you live beyond your means or buy things you seemingly cannot afford?

There are no wrong answers in taking the quiz, just a strong foundation to know where you are starting from. For couples, the LifeValues Quiz is a great tool to help understand each other better. We’ve all heard that opposites attract. By taking the quiz with your spouse or partner you may discover that their values are not always the same as yours. This creates an opportunity to connect and compare your goals through a meaningful discussion.

Another helpful tool to help you accomplish the resolution is the Financial Identity Quiz. Remember The Game of Life, where you make choices along the journey from young adulthood to retirement? Financial decisions are a big part of life, no matter what path you take. By understanding the factors that influence what’s important to you, your decisions will help you better plan for the inevitable twists and turns in the road. (Again, the best part of these noncommercial quizzes is that there are no wrong answers—just accurate feedback for you and about you.)

Tying your budget, goals and financial priorities to your personality assessment provides a much higher chance you will stick to your resolutions. Yet despite all of the basics, there are a few additional things that you should pay attention to.

One is the fact that life happens. Two-thirds of Americans say that they experienced an unexpected financial setback in 2015, and current data suggests that the average person will suffer four income disruptions—of at least 10%—during their working years. We must understand there will be surprises that we are going to have to pay for along the way. We need to stop viewing significant expenses—like car repairs, housing issues or a health crisis—as unexpected.

Prepare for these costs not as if they will happen, but rather as a matter of when they will happen. As a good rule of thumb, aim to save 10% of your income. If you feel you cannot afford that, even saving as little as $500 provides a psychological benefit. By starting small, you prove to yourself that you have the ability to achieve a realistic goal and then set the bar incrementally higher. The silver lining is if a significant expense doesn’t occur you’re that much further ahead.

The new year is a time for optimism. Fundamentally, budgeting, reining in debt, saving and setting realistic goals will be our best prescription for 2016. Here’s to your financial health.

Ted Beck is president and CEO of the National Endowment for Financial Education, a member of the President’s Advisory Council on Financial Capability for Young Americans and chairman of the Jump$tart Coalition.

courtesy of the Wall Street Journal Blog: "The Experts"SERGEY TRYAPITSYN/ISTOCK